Welcome. And thank you everyone for tuning in to our latest economic Outlook, report with, the focus on the, economic, indicators most impacted, by kovat 19 this. Conversation. Is taking place on Friday April 10th, 2020. Joining. Us on today's calls a special guest chris derringer, from Microsoft leadership focusing, on CPG, and retail, industry, segments, Chris's. Experience, includes, marketing supply, chain finance operations, strategic. Planning I'm all, to utilize business, intelligence, technology, data, warehouse, application. Development, ERP. CRM installations. And. Much more per, usual please, welcome private. Aires chief economist, and rudy Gay who will provide an overview on potential, recovery, scenarios, and next steps to planning Chris. Let's start with you perhaps, you can provide us an overview of Microsoft's. Perspectives, and insights regarding, the rapidly developing economic, challenges. Resulting. From the health crisis. Yeah. Happy. To do so and thanks for having me it's, it's. Certainly hard to put into words the impact that koban 19 has had into our environment and again for those out there I want to thank the the, first responders. Those on the frontlines those, essential, businesses, that are out there today. Keeping. The the wheels, moving, the economy motioning. And you know us us fed and safe so so first I wanted to to, make sure I called, that. With. Inside of Microsoft today, we are seeing you know three categories. That I'm calling, out here and and the, first category, of the first part is navigating, the now and in that we're, seeing organization. Set up nerve centers, standing. Up crisis responses, we're. Protecting, employees, updating. Travel, you probably seen stay-at-home bonus, and sick leave stressing. Customer sensei safety. And then reorienting, around businesses, is definitely, amplifying, on the digital and looking at cost savings opportunities. When. We start to come out of this navigating. The now there will be a plan to come back and we'll, start to look at building recovery, strategies, that's going to be a mix of financial resilience, operational. Ramp and strategic, go, offense moves, rethinking. The business portfolio, identifying. Opportunities where. We can gain share and then keeping a tight handle, on cash is the the AL Kannamma, the economic, impact we're saying could definitely be long-standing and then, finally, shaping, the new normal, so access. Access. Shifts. In consumer sentiment. And behaviors. That may stick post, a crisis. Putting. Digital at the center of a lot of our relationships, is a key focus that we're looking at, id8. On how will evolve on product services, what does that new piece look like and then prepare to plan for the long term so, in those three areas are, ways, that we're seeing our overall, environment. And of, that, there, are four. Key. Areas that Microsoft, has looked at from a retail and consumer goods that we're going to we're going to focused. And. Those four here you, can see the, the first one is essential. Retailers, right so if. You think about the essentials, out there today. Grocery. Pharmacy, consumer, goods there, there is a tremendous. Uptick. In the business, and how we're looking at working, within those those. Those, navigating. Them now that are essential. Curbside. Pickup is incredibly. A place. That's going to pick up and get much broader, and larger attention, across brochures. And across QSR, our quick service restaurants, and casual dining, skip. Looking. At ship at home services, so, those services, that blend and work with the partnerships, think, about the instant carts the ships the GrubHub the uber eats those, are currently in today, but where consumer. Goods and retailers, are looking to own and build that brand directly, with their consumers, there's tight focus there and then you, know we talked about a lot of social distancing, apps how. Can organizations. Set. Up appointments. Have been the right, amount of emotions when we look at those, essential, retailers, today and how we protect the people in navigating.
Them Now. Evolving. Employee needs is definitely, a large, area. That we're focused on I think there's been something like our. Microsoft, retail, stores as shifted, to completely, online and we've had. 57,000. Minutes so, if it's re 50 thousand, meetings recorded, today and on, teams today for the front line workers, and stay-at-home workers and information, workers there's something like 900, million minutes, a, day, that we're recording, and I'm sorry not recording that we're pulling in. On. A daily basis so supporting, people and what that looks like this is very important. We're, seeing a connection, of essential, and non-essential so. The. Employees. Who have. Been impacted. With idle workforce are. Having the opportunity to, work with some of those that have capacity challenges. So we're looking at how we can connect both, of those organizations so furloughed, employees like. The gap for example can start to connect up to those also. Grocers, in their environment, like a Safeway, Albertsons, to, share. And, make sure ensure those frontline workers, are protected and then have the things that they're looking for there. There's, definitely, increased, if you look at three e-commerce, demand, so, with, the shift to home with the online purchases. That, is a incredibly. Important. And strong area, that we're seeing shift right. Now one. On the CT is here the consumer goods company side for supply, so. Subscription. Services, and setting up those ongoing, services. Of shift to home is is it is a key focus and then, on commerce building, up that online practice and actually, but focusing. On the areas, that will, protect and increase. Cost it's somewhat, of a new world for many traditional brick-and-mortar shops, where a lion's share of their revenue has in profits, have been generated, on brick and mortar so, moving, to e-commerce, and. Rapidly. Accelerating. To e-commerce is. A motion that we're seeing, finally. If you look at supply chain, product. Visibility, intelligent, controllers, and Providence, are very important, to prove and see that the product and channel and operations, are being delivered as needed. Logistics. Warehouses. And distribution are, important areas to make sure one they're protected, to, that, prod the increased, product demand is something meets not just the.
Convenience, Requirements. But also safety, and finally. I think when we look at the last piece of that it's forecasting. So we've, seen stock outs and stores we've seen the spikes of various different, that are being ordering, today there. There's definitely an, adjustment. And, a lot of the forecasting, models that we had are completely. Out. The window so what, one how do we adjust the models not just on these spikes but during this short. Period of time the, near term and then the long term what larger, key indicating. Factors, are we looking at and when will we come out and move from planning, the comeback to shaping the new normal and, I think you, know as we transition, and. Your there are some great key leading indicators, that you and private entry have identified, that, call out some of these for, organizations, to look at as we see that long term approach now. Yeah. Absolutely Chris, I think as, we think about forecasting. And, predictive, modeling, and thinking. About how we did things before, the crisis, I think. What it comes down to is that I think everybody is really learning very, quickly and. Some the hard way is that if you're not accounting. For externalities. Or external, factors and your predictive models you're, leaving your, supply, chains and and, your. Forecasts. At very, vulnerable spots, and so, that's really what private areas built off of is combining. A lot of external factors, into. Predictive, models, to, help mitigate, external. Economic risks of course, and then we also have the health risk as such as this crisis, and so I think. You said it well right every forecast, and in every model has essentially, been thrown, out the window before. The crisis but, that doesn't mean that the, process, of forecasting. And planning is, going. To be set aside for very long eventually. After we get through this kind of nearest term stage. Of, managing. The crisis, we're, gonna have to get back to thinking. About what comes next what's gonna happen, in the second half of the year what's going to happen in 2021, how, our. Key, category, is going to change how our consumer. Preferences. Going to maybe. Be permanently. Altered or perhaps. Some, are going to return, to. Some. Pre crisis normals, there's a lot of uncertainty. And if we're not modeling. Or trying to identify the. Right key leading, Decatur's then. We could be weaving our models and our assumptions, very exposed, to. A wrong, set of assumptions about what life looks like post, kovat. And. And that's where we've been really tailoring. Our. Conversations. In these weekly, webinars, lately, is, is about the ongoing not, only health crisis, but the ongoing economic crisis. And saying, what. What does life look like after. This settles down of course first. Thing that has to happen is is we need the health crisis, to settle down and. We're still very, much in the middle of a very challenging, health. Crisis environment, as, we speak right now when we look at the elevated, levels, of total. New cases now, of course this. Epidemic. Started, in Asia shifted, its way over to Europe and, then here, in the United States and now we're, talking about a lot of concerns, about you. Know emerging markets starting. To go, through the the effects of shelter-in-place. And. How that's going to have an impact on, on. Vulnerable, and fragile economies. There but. Might be necessary, in order to stem. Health. Crisis, from expanding, so we're continuing, to monitor I say, the the key leading indicators, obviously for economic recovery still, center, around the. Health crisis, and can we get the number of new cases contained, and and sort. Of flatten the curve, as. We say, and. I think there is reason to be optimistic when, we do look at the metrics when we look at Asia and, Europe as leading indicators, to say that we, can flatten the curve and and even, different. Models, that, you see recently, I've. Been looking at the one called an IH ME model, from. The University, of Washington, that, has that. Is often, cited and, in talks about projections, of of new. Cases and whether, hospitals. And resources, are going to be constrained, and lately.
That Models has been suggesting, you know fewer beds have been needed and. That fewer deaths are estimated, in the United States so I think there, are positive, signs that we are flattening. The curve in our actions, in. The near term and so hopefully. What this means is that as we. Gather. You know days. Or weeks from now we can, start thinking about what's. What, is life going to look like after this after some of these restrictions get lifted and the, economy, has the opportunity to move back to. Recovery. When. Looking. At those various, scenarios I think, there's a lot of different, opinions. Out there and and even. Economists. Have been going, through the alphabet in terms of, hypothesizing. About the, very sunette scenarios, that consumer. Packaged goods and, retailers, are going to face everything. From. The. Potential scene of v-shape recovery where the economy, quickly. Bounces back to pre-recession, levels, to. U-shaped. Recovery, which means, that essentially takes longer, but, then I've even heard new ones we've. Talked about a w-shaped. Recovery that, is cyclical, you know and this could be tied to the virus perhaps, coming. Back. After. We lift, out restrictions, I've, also heard l-shape, recovery, or even sideways, J so. There's, all sorts of options out there to say this, is what could happen I think that. A lot of those hypotheticals. Don't really do us, in the, business world a lot of good. In practice, if we have to model and scenario out everything, so so. We're, trying our hardest to say what what is realistic. What is a baseline, scenario when, it comes to thinking. About planning, for, the second half of the year what. What. Is realistic, to, to. Come to some conclusions, on and so a private, area we've been putting together a baseline, scenario and, we realize there's a wide range of, options. But when, we talk. About the. Different impacts, to, either, consumer, behavior, or businesses, here's. Just, some highlights of where we think is, a likely, baseline, scenario that, we could start to again. Start. Building plans around in, the second half of 2020. So. We think. Yes. Yeah, I think you pointed out a couple, good things that there's an infinite, number of ways to probably, look at what this would look like a year, two, years from now and a. Lot of the important. Indicators, that you mentioned, as we look through it is there a way to narrow, some of the what-if scenarios. For some of our customer, so you, know from private Ares perspective, do we look at one, trend, is there a way to look at you know a conservative. Moderate and potentially. Harsh harsh. For you to try to plan and what some of those forecasting, models look like because as you mentioned, there's. There's various. Hypotheticals. Out there around, when. This could come back what would this might be what does another, potential. Pandemic look, like what's, what's, kind of private Ares perspective, and your perspective, on that, is is, it to harden more, on one is it get you a few a few, that you could that. You could choose from clearly. Infinite, or not the right way definitely. Interested in your perspective on that. Yeah. And you know we we've heard everything from this is the beginning of the next great depression, to you, know everything will be fine as soon as we reach the peak number of cases and that starts to come down and in reality we know it's probably gonna be somewhere in between, what. We've been doing with our customers, is R is recommending, going with three scenarios when we call this baseline. Scenario which, is what I have up here and. Optimistic. And pessimistic and, we might put probabilities. Around these we could maybe say a twenty. Sixty twenty right, around. This and it's, important, to. Forecast. With a. Range. Particularly. In the elevated. Times. Where there's just elevated, uncertainty. And you need to have a wider range of expectations but, again. With the infinite, possibilities. Having. Three scenarios where the baseline is is a good recommended. Standard, standard, practice. Hmm. Thank, you. Yeah. And in our in our baseline I think, when, we when we look at the realities, of the situation is, that we will see some recovery in the second half of the year, businesses. Will rebound, obviously, as stores. Open again and people go. Out to you, know go shopping, however, it's probably not the, likelihood. Is that it's, not going to be what I'll call v-shaped recovery that, that, we, don't go through a crises like this, I think psychologically or. Financially. And come out of it on the other end just. The same right we we've had a 10-year run between recessions. And during. That 10 years as is, natural during, times of economic expansion, you, have businesses. And consumers. Start. To leverage more borrow more increase, their debt levels and certainly, the.
Government, Having. Stimulus, packages, and the Federal Reserve having back stops for businesses, certainly helps cushion, the blow from. An a period like this but one thing we can guarantee is that we won't come out of this crisis. With any sort, of lower debt levels right if anything we'll. Be lucky if our, if we're in as good a financial, shape as we did coming into this crisis. And so this leaves us and, I think a vulnerable, spot when we think about the second half of the year is it really, a realistic expectation, that, consumers, will be just as confident and happy as they were before the crisis happened they were actually, at historically. Pretty high, levels, versus. Historic averages, I think, you might see a more conservative. Consumer. In many regards and that could impact discretionary. Spending. At. The same time when you look at what businesses, are going through are they really going to be. Experiencing. The same levels of hiring and investment as. We saw before the crisis we entered, this crisis with a historically. Stellar. Job market, in terms of near. Record low on levels, of unemployment. More. More. Jobs available than. Unemployed. People to fill those jobs and. And that is likely, to go away when you look at, surveys. From. The National, Association of business economists, even though. The average, economist. Is surveying a rebound. And. In actual GDP, growth in the third quarter of twenty, twenty the. Average, forecast, is for unemployment, to be around ten percent by the end of the year and six, percent by. The end of 2021, so, what. We're really saying is that the. Labor market is not going to look the same that many of the jobs that were lost during, this crisis, not coming back and that consumers. Are going to be facing a more challenging job, market and that could impact, consumer. Spending, and in multiple, ways we think. Yeah. I do. What I like a few, things that you pointed out I think you, know if I can, relate some of the things we're seeing on the you know with the, 500. Retail. And consumer goods customers, that I, support. In our enterprise commercial. With. Inside of Microsoft, initially. We had a lot of requests. Around. Cloud. Economics. Right, moving. Moving. On, premise, solutions, into, the cloud a hardening. Of VPN, and networking. Environments. Building. And you might have seen it we, built the the chat box with the, CD seem you've got other examples, of, consumer. Goods companies, and retailers who, the, evolving. In changing. Policies. In state, and local government, including. The federal government including their own kind of changing, rapidly so. Are the initial response to fob with what you've seen as we've seen this. Navigating. The now around. Where. They can leverage cost, savings, opportunities, where. They can help enable their workforce, and drive, but, to your point then on the, comeback and as we see companies, shifting, and looking out you, know I definitely think that as you mentioned consumer. Sentiment. Consumer, behaviors, are definitely, going to change you. Know in the grocery industry today. I think, only 2/3 percent, of. Their, entire sales, of the market, makes up their, online sales. And purchases, so we are going to see an increase, in that an increase, in curbside and, in online, and e-commerce ordering, that, will drive a different, behavior in logistics, and shipments, and sales. And in and how their own employees react. Also. II think we'll see it will, see a more connected, workforce, at, the employee, angle, in, even areas like brochures, and cues where as these, constant, updating things come through you. Know the number one thing we hear from our customers are, mobilizing. A work for, is one of the most. Challenging but, important. Things that in strategic compares, if they focus on and and. This, environment. This pandemic will harden what some of those people almost look like so. Yeah it's definitely agree. That they are both those from.
A Consumer, lens from, a business lens as well as you know their their frontline, work force on how they'll react. Yeah. Chris I think you bring up some some, great points, because you know you usually when you you get on and you talk about recession. Right it's usually just taken as a was, a completely negative thing but it was so much disruption, going on in consumer, habits to think about how much that you know this, is everybody, has had to change their habits on a daily basis, to. Manage, through this event this. Could definitely, reshape, and open up new market, opportunities, for businesses, in ways that they, might have been struggling. As a laggard to, get involved. In or might have yeah, you know played. A smaller role. Because. There's some market leader out there that had control, you. Know just thinking. About all the different ways we've all shaped changed. Our behavior, during, this and will continue. To make, different you know spending habits and shopping habits after this this crisis. The. Health crisis, gets removed and we can go back to work I imagine it's going to create a lot of opportunities for businesses, as well, yeah. Society. Is the. Recognizing. And understanding we call it you know the personalization. Effect, of a consumer. / customer, and that's, why, you know we look at it as identity, proximity. And content, you know how can I identify a, customer. Understanding. Their behavioral and shopping patterns both online and brick and mortar and then provide relevant content to them well it's been very generational. Right, the. Earlier, you call it Gen Y Millennials. Have been more apt and. Easier. With providing, their information, granted. That there is a good experience and personalized. Personalized. Experience, around that but, you, know a more traditional or, older. Generation, as far as Gen X and. Boomers. Have not wanted, to be. Recognizer have any type of facial recognition a, part of a part, of their shopping experience, until. The interesting, unique. Common. Denominator, is when you have a problem or an issue with a product or service you, demand, that your, brand. That you're working with then know everything about me right, what. We're seeing is or, the interesting, parts about that now is a lot of that is shifted. People. Are wanting to now know like is the person next to me have, a fever, do they not our. Is the staff, that I'm going into a brick-and-mortar office, following, all the proper. Safety and health procedures, right have they walked through and done all the the. Things to wash, hands, put on protective gear.
Sanitize. Shelves, and environments, and there are entire, cognitive. Services in visual, and facial recognition. Businesses. Centered, around. Showing. That improving, it showing Providence, from end to end to. Give that one consumer, confidence on, that the shoppers next to them are the. Safe and that, the workers, and the frontline workers working with them have have, done the the appropriate needs in that spot so there's, definitely. A shift. In, that mindset, and in a wide span, of opportunity. To accelerate, many. Of those things we thought might be 10. Or. Even 12, years off that maybe one to two so yeah there is it's. An interesting model on what it's, interesting to see how those models. Yeah. Exactly, and then so I think you know to kind of tie this all together when, we when we think about planning. For the second half of the year and we talk about scenarios you. Know we we, say yet the plan, for an optimistic, and a pessimistic, because there is a lot of uncertainty but. Our baseline. Right now is that yes the consumer, is, going to come out of this shaped, very differently, and likely in a weaker financial, position, as. Businesses, who have taken, a large, toll and you know closing. And distancing, and and all that stuff that just naturally hinders, economic. Ability. But. As we move, through the second half of the year and look forward to 2021, this will, shape. Opportunities. In so many different ways and so while we might not be in a position like, we were pre-crisis where unemployment. At record lows and, wage, growth is is accelerating. We. Still, come out of this with I think a lot of opportunities. To. Connect, with our customers and, new ways and and, find new ways to, create. Opportunities. And that and that's what a lot of these these. Challenges. Challenging. Economic times tend to present its. New ways of doing business going. Forward so, and we think there's still a lot of opportunity. With that even, when, we look at the net numbers out of the economy and we know that this will be not, a simple recovery, but, it'll be bumpy. Along the way and a little bit of a slog, but, that doesn't, mean that we can't find ways to create. New business and connect for their customers. Despite, these these conditions, yeah. I think to to bring it back to some. Of the areas of a forecast, and for merchants, and category buyers and, demand planners, and supply chain there's. Been a explosion. And I think pre-pre. The pandemic, of, what. We'll call you Internet of Things devices, that, sensors, in, stores. That you know see on, a more, real-time level. Products, moving in and out of shelf, there's. Blockchain, solutions, that show the Providence. And traceability, and supply chain control towers that, show, you know from start to finish where, these products, move where they don't, increasing. Transplant, being removing, risk of ethically environmentally. Sourcing sourcing. I'd imagine, that as the, explosion, of these sensors. And more, and more physical, data. Becomes, relevant, that that's important. Indicators, that would feed into the models, that you are looking at across down what private area does today. Yeah. There's an increased focus I think in in both real-time, data, and looking at non traditional indicators I've, given this new environment and, those need to be incorporated. Into your predictive. Models and implants.
Because The obviously, the economy is changing rapidly and is going to look different coming, out of this than it did coming in so. So. Have. Been being, able to take advantage of cloud. Computing machine. Learning, and. The, millions, of data sets globally, out there that. Are ready to be, scraped. And correlated. To your business trends to identify, with what are key indicators that can help you. Model. And predict. Where, sales are going to go is, increasingly, important, so we do have a lot more technology, I think in, many ways to throw throw. At this so. While the forecasting, struggle is real when, you go through a health crisis like this that essentially. Itself, was unpredictable. You know besides maybe weeks in advance, coming, out of it I think we have a lot of opportunities, to discover. New indicators, and, build better models for. For, predicting, trends in the future. Wow. Thank you both for, your commentary, Chris, we sincerely appreciate, getting. Your point of view along, with Andrew on. The, economic, impact, and looking toward recovery and the new normal, I'm using, the term that you both used, it's, nice to just get a glimpse at the future beyond, this crisis, after all these trying weeks on so, thank you both and Chris we hope you join us again I feel like we could have expanded, this conversation. Another 20 minutes so, please, come back any time, yeah. Yeah. Absolutely I had a great time the, kovat 19, these, impacts, and other impacts are fun of mine I think for all of us and again. The partnerships, that I think both private area and Microsoft, offer. Are. Unique, and and provide, a lens, to our customers, that can help them through this process yeah. Happy to be here thank you, and we, obviously feel, the same um so. With that that concludes this. Economic, update for Friday April 10th 2020. Our thoughts are with all of you and your families, as well as the many scientists. And healthcare. Providers working. Through this health crisis, stay, tuned for, ongoing announcements. As we'll be following up with updates, as developments, are available. As. Always if you have any questions, for either Giora Chris please, feel free to contact me and I will forward your, inquiry, on to the appropriate, person thank. You very much.
2020-04-22